U.S. pending home sales rose a better-than-expected 4.3% in August, according to the National Association of Realtors. The tally, however, may have been skewed higher by the extended closing deadline for the home-buyer tax credit.
Congress extended the closing deadline of the tax credit to Sept. 30, 2010 from June 30, 2010. That means buyers who purchased homes by April 30 had three additional months to close on their transactions, which may have "elongated" or drawn-out the stimulus effect, in this case pushing the August pending sales total higher. To be sure, many of the closings likely occurred in May and June -- or prior to the original June 30 deadline. But some also would have occurred in July and August, boosting pending sales in those months, as well.
A Bloomberg survey had expected sales of pending homes to rise 2.8% in August after rising 5.2% in July. Pending home sales are still 20.1% lower than they were a year ago in August 2009.
August pending home sales rose in three of four regions. Sales dipped 2.9% in the Northeast, but increased 2.1% in the Midwest, 6.7% in the South, and 6.4% in the West.
Job Growth: Key to Housing Sector Recovery
Lawrence Yun, NAR chief economist, said August's pending home sales data is consistent with a gradually recovering housing sector, but he doesn't want to delude anyone regarding the keys to a sustainable increase in home sales.
"Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market," Yun said in a statement. "However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence." Yun added that he expects "a steady rise in home sales," but cautioned that any sudden rise in mortgage rates could slow the recovery.
In general, economists view new and existing home sales statistics as more accurate indicators of housing sector activity than pending home sales, due to the number of pending home sales that fall through as a result of mortgage problems, title issues, liens, and other complications that sometimes prevent signed housing contracts from being finalized.
Is U.S. Housing Sector Starting to Bottom?
Based on recent new and existing home sales data, one could make the case that a bottoming process has started in the U.S. housing sector. In August, existing home sale rose 7.6% to a 4.13-million-unit annual rate, and new home sales were essentially unchanged at a 288,000-unit annual rate -- the second lowest rate since 1963.
In other words, an optimist would look at the above and argue that it suggests total home sales will likely rise, since new home sales can't fall much lower.
Conversely, a pessimist would point to sluggish job growth weighing on both existing and new home sales and the large number of "shadow" homes -- homes previously taken off the market that are suddenly listed for sale again -- which could put further pressure on prices and prompt potential home buyers to delay their home purchases.
One point both the optimists and pessimists would agree on, however, is that adequate job creation of better than 150,000 net new jobs per month would support the housing sector's recovery by both increasing household wealth and consumer confidence.